Mortgage Meltdown Cases May Be Affected by Decision on Timing of SEC Suits

The U.S. Supreme Court will hold oral arguments Tuesday in a case that could have a big impact on the government’s ability to bring fraud cases seeking civil penalties, including cases involving risky mortgage practices.

The issue before the court considers the statute of limitations period in a civil fraud case brought by the Securities and Exchange Commission that alleges two fund managers authorized an improper trading technique. But the case could affect other cases involving late-discovered fraud, the Washington Post reports in conjunction with Bloomberg News.

The relevant statute says any penalty action by the government must be brought within five years of the date when the claims first accrued, according to the cert petition (PDF). At issue is whether the five-year statute of limitations begins to run at the time of the alleged violation, or at the time the SEC discovers or should have discovered the alleged wrongdoing.

According to the cert petition, the conduct at issue was not fraudulently concealed and had ceased more than five years before the SEC brought suit.

The Post interviewed former SEC official Tom Gorman, who said the decision in the case could affect mortgage meltdown cases. “Those cases are going to be very old by the time they’re brought,” Gorman said. “Some of these cases date back to 2006 and 2007, and they’re running out of time.”